Microsoft (MSFT) and Alphabet (GOOG) (GOOGL) this week both told investors that their cloud businesses continued to see strength in their most recent quarters. And with that trend expected to continue, several chip companies may stand to benefit, according to Bank of America analyst Vivek Arya.
In a new research report, Arya noted that spending on cloud computing has been “resilient” so far, despite global worries over a resurgence in COVID cases in China, a broader economic slowdown and rising inflation. As such, stocks like Nvidia (NASDAQ: NVDA), Marvel Technology (NASDAQ: MRVL), Advanced Micro Devices (NASDAQ: AMD) and Broadcom (NASDAQ: AVGO) could show similar strength when they report quarterly results.
“[W]e believe strong employment trends and needs for secure [and] high-speed hybrid work environments globally are boosting enterprise demand, while the tight supply situation provides strong pricing support to chip vendors, “Arya wrote.
Amazon (AMZN) also posted strong cloud results this week, as its Amazon Web Services [AWS] revenue grew 37% year-over-year to $ 18.4 billion, up from $ 13.5 billion in the year-ago period.
Delving further, Arya noted that AMD (AMD) was recently selected by Meta Platforms (FB) as a new CPU vendor for its servers late last year.
Additionally, Meta (FB) selected Nvidia to build its AI Research SuperCluster using Nvidia’s GDX A100 systems for a number of tasks, including training artificial intelligence models.
Arya has per-share price targets of $ 153 on AMD (AMD), $ 780 on Broadcom (AVGO), $ 100 on Marvell (MRVL) and $ 320 on Nvidia (NVDA), respectively.
In addition to the data points provided by both Microsoft’s (MSFT) and Alphabet’s (GOOG) (GOOGL) cloud results, Taiwan Semiconductor (TSM) saw high-performance computing wager sales rise 26% sequentially, accounting for 41% of demand, surpassing smartphone chips for the first time. Texas Instruments (TXN) also saw strength in the enterprise, up 35% year-over-year, building off the same trends from Marvell and Broadcom, Arya explained.
With companies needing to boost infrastructure spending as employees increasingly opt for a hybrid work week, areas such as networking, Wi-Fi [and] Bluetooth and storage “could see elevated spending,” the analyst explained.
Earlier this month, investment firm New Street Research upgraded Nvidia (NVDA), nothing its attractive valuation and likelihood for a strong outlook for its datacenter business.